Beware Payday Loan Scams
While payday loans can be legit, there are many scammers masquerading as payday lenders looking to trap the cash-strapped borrower in a never-ending nightmare. Here’s what to know about payday loan scams and how to avoid them.
Payday loan scams
Payday loan scams can come in many forms. Here are some of the more common varieties:
1) Phantom payday loan scams
In a phantom payday loan scam, a scammer contacts you, claiming you owe money on a payday loan you never got. They’ll demand immediate payment, use aggressive tactics, like threatening legal action, wage garnishment or even arrest. The scammer will insist on payment by wire transfer, gift card or prepaid debit card. Of course, once these payments are issued, they’re nearly impossible to reverse.
Tip: If you’re asked to pay back a loan you never got, you’re being targeted by a scammer.
2) Upfront payment scams
In this scam, a fake lender promises to give you a payday loan, but wants upfront payment for fees or collateral before releasing the money. These fees are often called “processing” or “insurance” fees. Once the scammer gets their payment, they’re gone and you never get the promised loan.
Tip: If a lender insists on upfront fees, it’s a major red flag.
3) Payday rollover scams
Payday loan rollover scams involve lenders offering you the option to “roll over” or extend an existing payday loan if you can’t pay it back by the original due date. While this may seem helpful, these extensions come with extra fees and interest that quickly add up. Scammers exploit this by trapping you in a cycle of never-ending debt where you are continually paying fees and interest without ever reducing the principal loan amount.
Tip: Not every scam involves blatant dishonesty. Some are simply misleading and aggressive ruses that ensnare you in a deal in which you don’t quite know what you’re getting yourself into.
4) Bogus payday loan services
Some payday loan scams involve fake companies that appear legitimate but are set up just to steal your personal and financial info. Once you apply for a loan, they’ll use your information for identity theft or to access your checking account.
Tip: Never share your personal data with unsolicited contacts.
Protect yourself
Don’t get caught in a payday loan scam! Protect yourself with these tips:
Research the lender. Before applying for a payday loan, thoroughly research the lender. Look for official state licensing and reviews from prior customers. You can also check with consumer protection agencies, like the Better Business Bureau (BBB) or Consumer Financial Protection Bureau (CFPB), to see if any complaints have been filed.
Avoid upfront fees. Legit payday lenders don’t require upfront payments. Be highly suspicious of any lender asking for an advance fee to process, insure or secure a loan. These requests are almost always scams.
Be wary of unsolicited offers. If you are approached by a lender offering a payday loan without you applying for one, be super-cautious. Legitimate lenders will not offer you a loan unless you have initiated contact.
Understand the terms. One of the most effective ways to avoid falling victim to a payday loan scam is to fully understand the terms of the loan before signing.
Check for a physical address. If you can’t find an address or the lender refuses to disclose it, this is a huge red flag.
Stay safe!